Home Tech EcosystemSD Tech Mafia HNC Mafia Part 3: Cognitive Medical Systems

HNC Mafia Part 3: Cognitive Medical Systems

by Neal Bloom

By Andrea Siedsma

This series is dedicated to late HNC co-founders Robert Hecht-Nielsen and Todd Gutschow, who set the stage for San Diego’s vibrant analytics and data science community. 

In 1999, Douglas Wayne Burke was doing product management for an internet startup company in Austin, Texas called GlobeSet, which provided products to the banking industry for secure credit card transactions. Meanwhile, in San Diego, a growing analytics software company called HNC was big in the bank fraud detection space, but at the time didn’t have any offerings for electronic commerce or internet merchants. So, Burke was recruited to help create a series of fraud detection products that would be applicable to the new world of electronic commerce. That was the beginning of eHNC, which Burke co-founded and ran for about a year. 

While he was only with HNC for a short time, his work at the company left a lasting impression on the world of Internet-oriented fraud detection.

Below, he takes us back to his time at HNC, how it helped shape his future career, as well as his move from fintech to healthcare tech.

eHNC: When Burke joined HNC, he and the leadership team decided that the company’s Internet-oriented fraud detection products would be better positioned as a separate company, so they spun off those products into a separate company called eHNC. HNC provided the core technology and the initial funding (and many of the people). In a year, Burke helped grow eHNC to about $8 million in revenue and 80 employees.  

“At the time, HNC was taking a portfolio approach to its product lines and divisions,” Burke said. “Retek, HNC’s retail fraud technology, went public in mid-1999 and eHNC was going to be the next company to take public. We started the process of working with bankers to create and file an S1. But, unfortunately, the Internet bubble collapsed in early 2000 and after that, it didn’t make sense to go public. HNC re-acquired eHNC at a nice premium in mid-2000.”

Dawn of E-Commerce: While at the helm of eHNC, Burke helped to create the company’s vision of next-generation merchant services, launched the company’s award-winning products, and helped to acquire marquee clientele such as Amazon, Dell, Excite@Home, VerticalNet, eBay, and VeriSign. The product suite helped on-line merchants reduce costs (risk management and customer service) and increase profitability. 

“We were able to leverage HNC’s core fraud detection algorithms and software into merchant-focused offerings that we delivered as one of the first Software-as-a-Service (SaaS) licensing and technology delivery models,” Burke said. “It was a great business and transaction model and it was the dawn of e-commerce, so fraud was pretty significant and a big problem for the merchants and their banks and the associated card associations like Visa and MasterCard.”

Learning Curve: eHNC was Burke’s second CXO position and the first time running a division/spin-off of a public company.

“So I learned a tremendous amount about corporate governance, SEC regulations, investment banking, etc.,” said Burke, who also created the first electronic commerce business unit inside of San Diego-based SAIC, where he was VP of Electronic Commerce from 1994 to 1996. “eHNC was a corporate spinoff-type of startup – vs. bootstrapped, VC-backed, etc. – so I learned a lot about those parent company dynamics and challenges.  Ultimately, though, HNC and eHNC had super smart and motivated people at all levels and that was the part that was the most rewarding.”

Entrepreneurial Drive: “HNC was a fascinating company and culture, but I was interested in running my own company, not running a division of a larger company,’ Burke said. “So, when HNC acquired eHNC, I decided to leave to continue my pursuit and passion for building and running early stage startups.  Ultimately, about a year after I left, HNC was acquired by an even larger company, Fair Isaac.”

After HNC, Burke founded and/or ran a number of other companies, including Prodesis, a professional services firm that helped technology companies launch new products and refine existing products in the market. He was then recruited to take over a VC-backed Internet startup called Simile Software in New York that was using predictive analytics to better target Internet product placement and advertising. Two years later, in 2002, Burke came back to San Diego and was recruited to take over a struggling, bootstrapped company called DefenseWeb.  

“DefenseWeb was providing a number of diversified products and services to Federal and commercial entities. I came on board in 2003 and focused the company on DoD and healthcare. We grew the company quickly and sold it to Humana (a large public healthcare insurance company) in 2007 in a very successful transaction (for both DefenseWeb employees and for Humana).”

Cognitive Medical Systems: After a three-year lock-up period with Humana, Burke returned to the start-up world again and began exploring clinical healthcare informatics. This is the result: “I partnered up with the COO at DefenseWeb and two people who were former customers and were just retiring from the Navy. We collectively bootstrapped and created Cognitive Medical Systems and launched in 2011 and have been growing ever since,” Burke said. “We currently have 36 full time employees.” 

San Diego-based Cognitive Medical Systems, Burke said, was created to change the healthcare system in the US through innovative software solutions, platforms and tools. The company provides healthcare IT consulting to the federal government, primarily the Department of Defense, VA, and the U.S. Department of Health and Human Services.  

“If we do that well – and we have – it will allow us to create software products that we can sell to the commercial healthcare marketspace,” Burke said. 

“Over the nine years we’ve been in business, we’ve been profitable since a year after we started the company; we have no outside capital or debt, we’ve successfully completed about 50 projects for the federal government, and we’re employee owned,” he added.  “All of that has allowed us to build a commercial software product called Clinical Optimization and Reasoning Architecture (CORA). CORA is a product that is focused on an area in healthcare called Clinical Decision Support. Last year, we spun off that product into a new company called Saperi Systems. So, now we have two companies that are focused on two different markets and offerings – Cognitive, which sells health IT services to the government and Saperi, which sells clinical decision support products to commercial healthcare delivery systems.”

The Cognitive Medical Systems team celebrating happy hour – San Diego style.

Changing the Healthcare IT Landscape:  As the US moves to a healthcare system where we pay for value in healthcare versus just paying for services, clinical quality measures are one of the ways that the government and other healthcare “payors” determine if a provider is delivering healthcare of a certain quality, Burke explained. That’s why, he said, Cognitive’s work with the federal government, in particular the VA, which has had many efficiency challenges, is crucial.

“The DoD and the VA have large beneficiary populations – 10 million for DoD and more than 8 million for the VA – who have normal US population healthcare issues and some unique healthcare issues, such as PTSD, traumatic brain injury, etc…. Cognitive is one of the DoD and VA’s specialized contractors in that we’re solely focused on healthcare IT for the federal government. In that role, we build software, integrate systems, host and maintain software in the Amazon Cloud and generally try to make things run more efficiently and more cost effectively than they do now.  We’re also increasingly doing work for the Department of Health and Human Services. Most of this work, to date, has been in the area of clinical quality measures, clinical informatics and clinical decision support.”

“Our purpose in life is to empower the world to optimize healthcare outcomes,” Burke added. “Generally, we do this by developing and deploying innovative technology solutions for healthcare payors, providers and patients. And, specifically, most of our solutions either help make healthcare outcomes better, reduce the costs associated with healthcare delivery or help patients, providers and payors make better decisions.”

San Diego Ecosystem: When asked why he launched and continues to grow his company in San Diego, Burke said the answer is simple. “I love San Diego. It’s a great place to find technology talent and is a great place to raise a family – I have two kids. I also think weather, and the hassles of inclement weather, is pretty much a non-issue here so I think people are generally happier day-to-day and that has a positive impact on productivity.”

As far as San Diego’s tech ecosystem goes, Burke said, “I think people are passionate about living in San Diego so they are committed to helping to make their companies successful so that they can continue to live and work here and do interesting things – i.e. change the world!”

Editor’s note: This is part 3 of a multi-part series that spotlights several HNC alumni and serial entrepreneurs that still call San Diego home today and their impact on the ecosystem and our daily lives. Read part 1 and part 2.  


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